Judge: Cherol J. Nellon, Case: 21STCV16928, Date: 2023-11-28 Tentative Ruling

Case Number: 21STCV16928    Hearing Date: November 28, 2023    Dept: 14

Duncan v. Roth Staffing Companies- 21STCV16928

Instant Motion

            Plaintiff now moves this court, per Labor Code § 2699(l), for an order approving the settlement of this case.

Decision

Plaintiffs’ motion is DENIED. The court sets a trial setting conference on January 18, 2024, at 8:30 am.

Governing Statute

Labor Code §2699 states, in pertinent part, as follows:

“(a) Notwithstanding any other provision of law, any provision of this code that provides for a civil penalty to be assessed and collected by the Labor and Workforce Development Agency or any of its departments, divisions, commissions, boards, agencies, or employees, for a violation of this code, may, as an alternative, be recovered through a civil action brought by an aggrieved employee on behalf of himself or herself and other current or former employees pursuant to the procedures specified in

Section 2699.3…

…
(g)(1) …Any employee who prevails in any action shall be entitled to an award of reasonable attorney's fees and costs…

…

(i) Except as provided in subdivision (j), civil penalties recovered by aggrieved employees shall be distributed as follows: 75 percent to the Labor and Workforce Development Agency for enforcement of labor laws, including the administration of this part, and for education of employers and employees about their rights and responsibilities under this code, to be continuously appropriated to supplement and not supplant the funding to the agency for those purposes; and 25 percent to the aggrieved employees.

…

(l)(1) For cases filed on or after July 1, 2016, the aggrieved employee or representative shall, within 10 days following commencement of a civil action pursuant to this part, provide the Labor and Workforce Development Agency with a file-stamped copy of the complaint that includes the case number assigned by the court.

(2) The superior court shall review and approve any settlement of any civil action filed pursuant to this part. The proposed settlement shall be submitted to the agency at the same time that it is submitted to the court…”

Discussion

The terms of the proposed settlement are as follows. Defendants will pay a total of $114,463.77 to settle the PAGA claims against them. Defendants will pay $7,650.00 in settlement administration costs. Defendants will also pay $78,750.00 to settle any claim for attorney’s fees Plaintiff may bring under Section 2699(g)(1), and $14,136.23 to settle any claim for costs that Plaintiff may bring under that same section. Finally, Defendants will pay $10,000 in the form of a separate “service award” to the Plaintiff individually.

On December 8, 2022, this court denied Plaintiff’s previous motion for approval of a settlement because the parties had violated the statutory provisions for how to negotiate, calculate, and pay out the settlement amount. Counsel had agreed that the claim was worth $225,000, then taken their fees, costs, settlement administration expenses, and a “service award” for the individual plaintiff all off the top. They then designated the remainder as the “settlement amount,” leaving the LWDA with 35% instead of their statutory 75% (and the aggrieved employees with correspondingly less than their statutory 25%).

The parties have now improved certain formalities of their settlement structure. Primarily, the attorney’s fees and costs are now treated as a separate claim requiring separate justification. However, certain ambiguities and problems remain.

The structure of PAGA is such that settlement administration expenses are unavoidable. 25% of the recovery is owed to aggrieved employees, however many of those there may be, and however widely they may be scattered. However, the plain statutory language does not permit those expenses to be taken out of the substantive recovery for the claim. Paragraphs 24-26 of the settlement contract express an intent to calculate these expenses separately. (Declaration of Kane Moon Exhibit 1). But Paragraph 29a of the settlement contract expresses an intent to take these expenses out of the substantive recovery. (Id.). That ambiguity needs to be addressed.

The settlement agreement also gives Plaintiff an individual “service award” of $10,000. While such awards are common in the class action context, nothing in the PAGA statute permits them. As this court previously explained, Section 2699(i) allocates 100% of the civil penalties recovered. Section 2699(g)(1) creates a separate, subsequent claim by the Plaintiff to attorney’s fees and costs. But no section either expressly or implicitly authorizes a side payment of any kind to the individual Plaintiff.

Finally, and perhaps most importantly, the circumstances indicate that Plaintiff’s claims are being undervalued. The parties originally valued the case at $225,000, settled the case for $225,000, and took all the fees and expenses out of that. Having been told that this method was improper, the parties have now returned with a settlement that requires Defendants to pay the exact same amount. Only now, because of the change in the settlement structure, the case is being valued at the oddly precise amount of $114,463.77. This is not only less than the $225,000 for which the case originally settled, it is less than the amount that would have been left over after expenses under that original settlement.

The moving party justifies this by estimating Defendant’s maximum exposure at $761,300.00, then cutting that in half to account for the risks of proof and affirmative defenses. (Declaration of Kane Moon ¶ 21). Counsel then takes that amount ($380,650.00) and lops off 70% more, without any real explanation. (Id. ¶ 22). The settlement agreement itself, at paragraph 26, allows for the settlement amount to expand based on a fractional amount of $225,000, if the parties later find that there were more violations than they currently expect. (Id. Exhibit 1). It appears that counsel estimate the real settlement value of Plaintiff’s claims at $225,000, not the $114,463.77 for which they seek approval.

Conclusion

            This settlement contains an ambiguity with regard to whether administration expenses are being calculated separately from the settlement on the substance of the claim. It contains a “service award” for which there is no statutory authorization. And it undervalues Plaintiff’s claims. For those reasons, the motion to approve the settlement is DENIED. The court sets a trial setting conference on January 18, 2024, at 8:30 am.